Causal events charges gains another victory with the PFA

16 February 2015 Jonathan Faurie

There is an English proverb which says that there is no love lost among enemies. In a recent determination handed down by the Office of the Pension Funds Adjudicator (PFA), this proverb was both relevant to the complainant as well as the respondents in the matter.

Causal event charges have been a proverbial thorn in the side of the industry for a number of years. While the fund administrators argue that they are a necessary evil to recover the costs incurred during the administration of the fund, clients will argue that everything about causal events charges goes against what the Financial Services Board (FSB) hopes to achieve through the implementation of Treating Customers Fairly (TCF).

Raised voices

D Hauptfleisch (the complainant) became a member of the Professional Provident Society (PPS) Retirement Annuity Fund (the first respondent) on 1 September 2005.

The first respondent is administered by Sanlam Life Insurance Limited (the second respondent).

In December 2013, the complainant and his wife divorced. The decree of divorce incorporated a settlement agreement which provided for 100% of his policy value to be paid to the non-member spouse. The complainant provided the first respondent with a copy of the decree of divorce together with the written authorisation for his policy value to be paid to the non-member spouse.

In January 2014, the second respondent confirmed that the complainant’s full pension interest had been assigned to the non-member spouse. The non-member spouse elected to have the full pension interest paid to her in a single cash lump sum. She was paid an amount of R177 932, after the deduction of a causal event charge of R37 458.

The complainant submitted that a causal event charge was deducted from the policy value despite him being advised that no penalties would be imposed in the circumstances. He further submitted that the first respondent misrepresented the issue of the imposition of causal event charges to him by providing incorrect information.

Eyes wide shut

The complainant also submitted that he was still a member of the first respondent and never requested that his membership be terminated. He submitted that he was still paying contributions to the first respondent.

The complainant further noted that it was incorrect that the second respondent would be unable to recover upfront costs from contributions due to the termination of the policy as he was still a member of the first respondent.

The first respondent submitted that the complainant had been provided with Statements of Assurance dated 1 May 2013 and 1 August 2013, which stipulated that the value at an early termination could be lower as a result of alteration charges and market fluctuations.

According to the second respondent, the majority of expenses in respect of policies are incurred at the commencement of the policy or when the premiums are increased. These expenses are recovered by means of charges that are spread over the term of the relevant policy.

The first respondent submitted that whilst it was regrettable that incorrect information was given to the complainant on this occasion by the client services agent, it must be noted that members have been urged to contact their accredited intermediaries or brokers in order to obtain all the information pertaining to the penalty that may be charged.

The benefit statement was sent to the complainant before the date on which the settlement agreement between the complainant and the non-member spouse was signed.

Show no mercy

South Africa has always been an optimistic country where people get on with their business rather than complain about every situation that comes their way. However, over the past few years, there has been a culture of blame rearing its head in society.

In this instance, one cannot fault the ruling of the PFA. The complainant was given ample opportunities to find out that there would be causal even charges levied on his investment. The respondents in this case would have had to prove to the PFA that they furnished the complainant with this information.

Muvhango Lukhaimane, the PFA, said that members have the option of contacting their intermediary or broker to obtain information when they are not satisfied with the contents of the policy document or the information provided by the client services department.

“The complainant was previously provided with policy documents which indicated that an alteration fee would be imposed in the event of the premature termination of the policy. On his version, he was aware that the early termination of the policy might attract a causal event charge, which caused him to contact the first respondent to enquire on this. The complainant was, at the very least, aware of the provisions of the policy that provided for the imposition of the causal event charge in the event of the early termination of the policy. While the first respondent acted unlawfully in providing the complainant with incorrect information, it took reasonable steps to guard against the occurrence of this. Therefore, no party acted grossly negligently during the process. As a result, the complainant cannot succeed in claiming damages for the incorrect information provided to him and the causal event charge levied on the policy cannot be reversed on this ground,” ruled Lukhaimane.

Editor’s Thoughts:
There are times where we bring problems upon ourselves. While causal event charges have been the bane of the industry for a number of years, being the subject of a PFA investigation cannot be a good thing. The industry will change from a compliance perspective after the implementation of the Twin Peaks model and it will be interesting to see how this shapes up. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts


Added by Julius Strydom, 16 Feb 2015
This is clearly not fair. The product providers write these clauses into their contracts (that if ever read is rarely understood), eg 'as determined by the actuary' and are untouchable.

If the intermediary should write into his contract 'as determined by the FSP' he would fall foul of TCF

Once again, as in the judicial system, the one with the big bucks will win.
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Added by Moose, 16 Feb 2015
This is Rich!
Even when the Financial Advisor is not involved they want to get the advisor into a position where he can be to blame. I quote, "members have the option of contacting their intermediary or broker to obtain information "
Firstly, if the complainant had approached his Financial Advisor, the advisor would have had to ask Sanlam/PPS for the information which presumably would have been incorrect and then who would have been held responsible??
The Advisor no doubt - the proverbial soft target. A broker or advisor would never be allowed to get away with giving misleading or incorrect information. How can the PFA not hold PPS/Sanlam responsible?
Secondly, Who do you think is going to pay the advisor for his advice? Certainly not the Insurer (that would be against legislation - no gifts and soon no commissions). If the advisor were to charge the complainant an extra fee they could probably nail him under "TCF" rules.
These are the kind of things Gareth Stoakes would have picked up on before.
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Added by comment is free, 16 Feb 2015
A "causal event charge" of R37 458, with only ZAR177k paid out?
A 20%+ CHARGE on an investment?
On what planet would a charge like this be defensible as fair or reasonable?
In addition, this was after PPS gave out blatantly incorrect information to a client?
The industry has only itself to blame if no client trusts them whatsoever.
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